Chancellor Rishi Sunak has confirmed businesses in the UK will have an addition six months to pay back loans offered to help them navigate the Covid-19 crisis.
The decision means businesses can choose to make no payments on their loans until 18 months after they originally took them out.
The option to pause repayments will now be available to all from their first repayment, rather than after six repayments have been made.
Pay as You Grow loans will also enable borrowers to extend the length of their loans from six to ten years (reducing monthly repayments by almost half) and make interest-only payments for six months, in order to tailor their repayment schedule to suit their individual circumstances.
These Pay as You Grow options will be available to more than 1.4 million businesses which took out a total of nearly £45 billion through the Bounce Back Loan Scheme.
This is in addition to the government covering the costs of interest for the first year of the loan.
From today, lenders will begin reaching out to borrowers to provide information on repayment schedules and how to access flexible repayment options.
Sunak said: “Businesses are continuing to feel the impact of extended disruption from Covid-19, and we’re determined to give them the backing and confidence they need to get through the pandemic.
“That’s why we’re giving Bounce Back Loan borrowers breathing space to get back on their feet, through greater flexibility and time to repay their loans on their terms.
“Lenders will proactively and directly inform their customers of Pay as You Grow, and borrowers should only expect correspondence three months before their first repayments are due.”
Commenting on the news, Kate Nicholls, chief executive of UKHospitality, said the decision would help struggling businesses.
She added: “This is a welcome announcement from the chancellor as the greater flexibility offered in repayment options will give valuable breathing space for many hospitality businesses.
“The overwhelming majority are under huge pressure after months of little or no income, with cash fast running out and an ever-increasing debt pile as a result of prolonged periods of closure.
“While this does provide relative respite for some, it’s important that banks are as flexible as possible in allowing hospitality businesses to access better terms and follow through with this announcement.
“Government has a role to play if this is not seen to be taking place.”
She continued: “The survival of thousands of businesses and the ability of the hospitality sector to play a full part in the nation’s economic recovery hangs in the balance.
“What’s urgently required is a clear roadmap to reopening, a solution to the ongoing rent debt issue that continues to cast a huge shadow over the sector, along with an extension of the business rates holiday and VAT cut.
“These measures will help give hospitality a fighting chance to get through this crisis, to grow and create jobs once again.”